In Review: Annual Economic Outlook with Benjamin Tal, CIBC

Benjamin Tal, Deputy Chief Economist, CIBC Capital Markets, one of Canada’s top economists, offers his unique interpretation of economic data for the year ahead.


At its core, the supply chain issue is a demand issue. In 2021, consumer spending increased exponentially, from an average of $150bn to $600bn. Demand for goods exploded as if we added 75 million new consumers overnight to the economy. Increased spending will transfer into the services sector as consumption of goods drops to pre-COVID levels. Every pandemic is a trend accelerator, and deglobalization is the one we’re watching now. With trade tensions increasing due to geo-political risks, we’ll see the reliance and connection to China decrease. Some of the import market (e.g. microchip) will come back into the US, which will have positive implications for Canada.


The US is experiencing record-high quit-rates, and older American workers are exiting the market unlikely to return. In Canada, studies show that workers are thinking about quitting, while older workers are delaying retirement. Another important difference in the US and Canada labour markets is the role of immigration with Canada seeing per capita immigration rates 6 times that of the US. While Canada hit its target of 400,000 immigrants, 70% were already living in Canada, and became residents through a change in their status. Therefore, we didn’t see a significant impact on the labour market. Even so, immigration is filling most vacancies, except in healthcare and trades, transport, and equipment operations. The businesses suffering from labour vacancies need to work closely with government to ensure policies are put in place to incentivize immigration specific to location and trade/industry.


The causes of inflation today are different than in the past, and we risk choking a healthy economy by using the 1970s as a guide to economic policy. Wage and rent inflation might be permanent, but overall inflation will ease towards the end of 2022. It’s currently too risky to move quickly, but we can expect to see increased interest rates with the terminal rate being 1.75% or 2% but not earlier than 2023. Businesses can do a lot to fight inflation. In the 1990s wages went up dramatically, but inflation didn’t. Why? Because productivity significantly increased at the same time. By investing in high-tech capital, businesses can create a significant increase in productivity to fight inflation.
Update: As Ben speculated, the day after his presentation, the Bank of Canada did not move rates. If news on the pandemic and its economic consequences improves, we can expect a rate hike in March.